The 4 Major Reasons Why Institutional Investors Continue To Buy Bitcoin on a Massive Scale
Begun in early October 2020, the Bitcoin Bull Run that we are currently experiencing is driven by institutional investors. You have probably read about it somewhere before. So I’m not giving you any scoops here.
This 2020 Bull Run, which has pushed the Bitcoin price from $10.5K to over $41K in just a few weeks, has nothing to do with the 2017 Bull Run.
At the time, it was retail investors who were on the move. They had come en masse to buy Bitcoin. A FOMO effect had developed that allowed the Bitcoin price to come up against the $20K mark. The problem with these retail investors was that they did not understand the why of Bitcoin, or even that its price volatility is a feature, not a bug.
These retail investors are more inclined to let their emotions override their sense of logical reasoning.
Under these conditions, as soon as the Bitcoin price experienced its first big correction, the vast majority started selling at a loss the BTC they bought in FOMO mode. This caused a prolonged bear market that lasted throughout 2018 and part of 2019.
Bitcoin hit a low price of $3.2K at the end of 2018.
While the speculative bubble that had formed at the time around the price of Bitcoin did burst, Bitcoin resumed its revolution. Bitcoin is not a speculative bubble, but the needle that will burst the bubble of the current system where the U.S. dollar reigns supreme.
However, the distrust in the U.S. dollar has been growing for months. The thousands of billions of dollars printed out of thin air by the Fed and the other central banks over the last few months have left their mark on investors’ mindset. Everyone is looking for ways to hedge against the slow but sure collapse of the current system.
This is where Bitcoin comes in for institutional investors. Bitcoin is the lifeline that must prevent them from the Titantic-type sinking of the current monetary and financial system.
Their clients demand exposure to Bitcoin
The first thing to take into consideration is that the clients of institutional investors are well aware of everything that is happening at the moment. Many see that the endless monetary inflation of the U.S. dollar is hurting their hard-earned money.
All of them want to protect themselves against this great monetary inflation. Many realize that gold is outdated as a store of value. They are learning more and more about Bitcoin every day.
Most importantly, they see that the Bitcoin price has risen from zero to over $41K in just 12 years. They don’t want to miss out on what will still be the best performing asset of the next decade. These investors are demanding exposure to Bitcoin from their investment fund managers now.
The arguments are not hard to find. They say that they have heard big names in traditional finance adorn Bitcoin in place of gold. They say that Bitcoin is a 2.0 version of gold. They want to be part of the Bitcoin adventure.
In 2020, an incredible number of big names in traditional finance explained that they see Bitcoin replacing gold as the favorite store of value for individuals in the years to come. Legends such as Paul Tudor Jones, Stanley Druckenmiller, Ray Dalio, and Bill Miller see a royal future for Bitcoin.
Banks like JPMorgan, Citibank, and Deutsche Bank too. Hedge funds, insurance companies, or investment companies too. BlackRock, Mass Mutual, Guggenheim, Fidelity, and many others will eventually buy Bitcoin.
Under these conditions, institutional investors come to buy Bitcoin en masse with a long-term vision. This implies that these investors will not sell their BTC in panic when the price corrects by 30 to 40%. They are not retail investors who let their emotions drive their actions.
Institutional investors are taking long positions thinking that Bitcoin will reach $100K and then $500K by the end of the decade. This explains why they accumulate more BTC with each price drop that could cause a significant correction.
Institutional investors’ appetite for Bitcoin seems truly endless.
The TINA effect
The coronavirus pandemic that has been sweeping the world since the beginning of March 2020 has triggered an economic crisis of a magnitude not seen in decades. To fight against this economic crisis, the world’s major central banks did not wait before reacting as was the case in 2008 for example.
The Fed quickly decided to conduct an aggressive monetary policy with interest rates lowered to zero and an unlimited quantitative easing program that saw the U.S. central bank print more than 3,500 billion dollars in just a few months.
In total, the world’s central banks printed more than $12,000 billion out of thin air in just a few months. The public debts of the world’s major economic powers have de facto exploded. The world debt reached $277T at the end of 2020.
Institutional investors want to hedge against this great monetary inflation while looking for assets offering attractive returns. They first turned to the stock market. This facilitated the creation of a real Tech bubble.
The Dow Jones and the S&P 500 reached record levels showing a total disconnect between Wall Street and Main Street. The FOMO and TINA effects are having a full impact on the U.S. stock market. Now that the stock market is overvalued, institutional investors have had to turn to another asset.
That asset is Bitcoin.
As the Winklevoss twins explained in late November 2020 when the price of Bitcoin was $19K, they saw the Bitcoin price capable of offering a 25x gain from that price over the next decade. This had the gift of reinforcing the ultra-positive opinion of institutional investors on Bitcoin.
Now the situation is clear: There Is No Alternative to Bitcoin for Institutional Investors. That is why I call it the TINA effect. As long as institutional demand is at this level, the price of Bitcoin will not experience a major correction of 30 to 40%.
Bitcoin makes the buzz right now
As a Bitcoiner, I am convinced by the Bitcoin revolution. I have been buying Bitcoin in DCA mode for years now. Bitcoin is a paradigm shift aimed at building a better world for as many people as possible in the future.
Institutional investors don’t come to buy Bitcoin with that in mind, as you can imagine.
For them, Bitcoin is a financial investment like any other that has the advantage of making the buzz. They want to be among those who will benefit the most from the Bitcoin revolution. However, it is only on the financial level that they are interested in.
The fact that Bitcoin protects your wealth from any kind of censorship is of no interest to them. It is just another feature, but of little interest. The only thing that motivates institutional investors is to see that Bitcoin price has gone from $7.2K to over $41K in just one year.
Better yet, they understand that the prospects for the coming years are even more phenomenal for Bitcoin. They know that Bitcoin’s buzz will eventually bring retail investors in droves. As a result, the Bitcoin price will enter the positive feedback loop, bringing its price to at least $100K by the end of 2021.
This has the gift of motivating institutional investors to buy Bitcoin in large quantities with a long term vision.
People want to hedge against the great monetary inflation
The thousands of billions of dollars printed out of thin air by the Fed and other central banks are leaving their mark on investors’ minds. So do the exploding public debts around the world. The current monetary and financial system is suffering from seven deadly sins that will cause its loss sooner or later.
Everyone understands this today. We are witnessing a real mistrust in the U.S. dollar and the fiat system.
The best way to protect yourself against this collapse of the U.S. dollar is to buy the best hedge available. That hedge is Bitcoin. Institutional investors understand it more and more. Large companies are making Bitcoin their reserve asset as well.
In the coming months, the situation will accelerate further in my view. The year 2020 will have marked a turning point in the perception of Bitcoin for institutional investors. There will be no turning back. All this explains why the demand for Bitcoin has exploded in recent months.
What makes the difference with Bitcoin is that when its demand explodes, its supply remains frozen to 21 million units. Besides, the issuance of new Bitcoins cannot accelerate, because it continues to obey Bitcoin’s programmatic monetary policy. This very specific functioning of Bitcoin reinforces its scarcity and therefore the value of the units already in circulation.
If you have BTC in your possession, the best thing you can do is to keep them carefully.
The institutional investors understood the interest they had in buying Bitcoin. The Bull Run we have been experiencing since the beginning of October 2020 is a response to this incredible acceleration in demand for Bitcoin from institutional investors.
In the coming months, the situation will continue to be the same. The most interesting thing is that when retail investors come en masse to buy Bitcoin, its price will still be well above its ATH of the previous Bull Run at the end of 2017. At that time, the arrival of retail investors allowed the price of Bitcoin to quadruple in a few weeks.
The goal of $100K for Bitcoin at the end of 2021 remains as relevant as ever. For those who own BTC, the best thing to do at this time is to behave as a Bitcoin HODLer to take full advantage of what Bitcoin has in store for the months and years to come.